The Retail Sales gauge that came in on Tuesday, July 16th rose by most in three months.
It should be kept in mind, however, that the retail sales expectations are only made based on the seasonally adjusted figure. The non-adjusted one does not look so bright:
Figure 1
The Figure 1 demonstrates the retail sales to GDP ratio1 . Two conclusions can be made from this:
· June Retail Sales share in GDP has almost completely normalized after the pandemic surge,
· June is generally weaker than May. The 2024 June retail sales activity is the weakest in the post-covid era. It also looks weak even compared to all the post-GFC history
Figure 2 shows the seasonality table for the GDP-adjusted Retail Sales:
Figure 2
The Retail Sales activity is analyzed and published by the US Census Bureau. It uses the publicly available X-13 ARIMA program for adjusting estimates for seasonal variations2 . Making estimations for processed data without knowing the specifics of this model and parameters the Census Bureau uses should be done with care. We always prefer to look at the non-seasonal adjusted gauge as well, taking the seasonal adjusted figure for better understanding the market color. Analysts do not build estimation for this figure, though.
The only thing that we can see looking at US retail activity is that it is cooling off and has almost reached the pre-pandemic level. There is little ground for considering the June gauge too strong, so we take it as noise. Perhaps, the more correct question on this situation should be “what drove the model estimation low” rather than “what drove the retail sales high”. We do not know, for example, how the new federal holiday – Juneteenth3 – affects the model.
The upcoming months will bring more clarity. The most interesting is September, which is one of the weakest months. Given melting household saving and the high-rate environment one can hardly expect strong figures going forward.